The cryptocurrency markets are known for their high volatility. Recently, Bitcoin has experienced a massive correction that has not only unsettled investors but also led to a liquidation cascade of more than $1.2 billion. In this article, we analyze the causes of this development, the current market conditions and the possible future perspectives.
Causes of the Current Correction
The current downward movement of Bitcoin is closely linked to developments in traditional financial markets. After US stock markets closed in the red recently, the downward trend continued and also affected the crypto market. Bitcoin, which is considered a risky asset, was hit particularly hard in this environment.
The current Bitcoin crash (Image: Tradingview)
Another important factor is the growing uncertainty in the financial market, which can be seen, among other things, in the volatility index (VIX). In addition, institutional investors holding Bitcoin spot ETFs have withdrawn capital on a large scale, leading to an intensification of the sell-off.https://www.theblock.co/data/crypto-markets/bitcoin-etf/spot-bitcoin-etf-flows/embed
Impact on the Crypto Market
The correction has hit the altcoin market particularly hard, as altcoins are usually considered even riskier than Bitcoin. Many long positions were liquidated, further increasing the selling pressure.
At the same time, the number of short-term Bitcoin holders selling their holdings at a loss has increased. This shows that panic selling is dominating the market. Nevertheless, some indicators suggest that the market as a whole is more stable than in previous correction phases, as the realized losses are smaller compared to previous slumps.
Signs of a Bottom Forming?
Although the market is in a clear downtrend, current developments could also be signs of a bottoming out. Historically, periods of extreme fear are often followed by a recovery phase. The fact that long-term investors (so-called “hodlers”) are no longer selling their holdings on a large scale could indicate that the sell-off is abating.
However, demand for Bitcoin remains weak at the moment. Trading volume is down, and the flow of capital into the crypto market has almost halved in the last ten days. Should the downward trend in traditional financial markets continue, this could continue to put pressure on the crypto market.
The Role of Institutional Investors
Despite the correction, there are still positive developments in the institutional sector. MicroStrategy, for example, has again purchased large quantities of Bitcoin and now owns almost 500,000 BTC. CEO Michael Saylor emphasizes that this is only an intermediate step and that the company intends to acquire even more Bitcoin in the long term.
At the same time, traditional financial institutions are changing their attitude towards cryptocurrencies. Citadel Securities, for example, has announced that it will act as a liquidity provider for Bitcoin and other cryptocurrencies. This indicates that major financial players are increasingly involved in the crypto market.
The Correlation between the US Dollar and Bitcoin
Another factor influencing the price of Bitcoin is the performance of the US dollar. Historically, there is an inverse correlation between the US Dollar Index (DXY) and the Bitcoin price: if the US dollar rises, Bitcoin suffers, while a weakening of the dollar often has a positive effect on Bitcoin.
Currently, the US dollar index is at a crucial point. If the DXY continues to fall, this could trigger a bullish development for Bitcoin. Some analysts, including Bank of America, believe a correction of the US dollar is inevitable as it is currently overvalued.
Is there price manipulation behind it?
Discussions about possible price manipulation in the Bitcoin market arise in every market phase. Especially in times of high volatility or sideways movements, accusations of price suppression are raised. But is there actual evidence of targeted manipulation or is it an exaggerated interpretation of market dynamics?
The nature of price movements
Bitcoin, like any other financial instrument, is subject to the principle of supply and demand. In bullish phases, when demand increases, we often see rapid price increases. In consolidation phases, on the other hand, selling activity increases, especially among long-term investors who realize profits. This is often misinterpreted as price suppression, although it is a normal market dynamic.
A key argument against targeted price manipulation is that many early Bitcoin investors realize profits when prices rise. If an investor had bought thousands of Bitcoin at a low price years ago, they could see a round price point like $100,000 as a selling threshold in the current market situation to fulfill their financial dreams. This is not a sign of manipulation, but of rational investor behavior.
The Influence of Derivatives and “Paper Bitcoin”
An argument often cited in favor of price manipulation is the existence of derivatives markets and so-called “paper Bitcoin”. Derivatives such as Bitcoin futures enable market participants to speculate on rising or falling prices without directly owning the underlying asset. Critics claim that this makes it possible to influence the price artificially.
However, the effect of these financial instruments on Bitcoin is limited. In contrast to traditional markets such as gold, where there is decades of verifiable manipulation, Bitcoin is harder to suppress due to the option of self-custody. Anyone who owns real Bitcoin can transfer it to a private wallet at any time and operate independently of third parties.
Theories of Political Influence
Some conspiracy theories claim that political actors deliberately keep the Bitcoin price low in order to secure a strategic position for themselves and their allies. For example, a popular narrative holds that former or incumbent US administrations deliberately use mechanisms to “push” Bitcoin in phases of market maturity in order to create favorable entry opportunities for themselves.
Even if there is no direct evidence for such theories, it is important to monitor political decisions. Large institutional players with close ties to politics benefit from a clear regulatory framework and strategic investments. Nevertheless, Bitcoin remains a decentralized asset that is difficult to control in the long term.
Market Correlations as a more Realistic Explanatory Approach
Instead of assuming targeted manipulation as the cause of price declines, it makes more sense to analyze the correlation between Bitcoin and traditional financial markets. Historically, Bitcoin often falls in times of uncertainty in the stock markets. For example, the decline in Bitcoin followed the recent decline in the S&P 500 and NASDAQ. This correlation is a much more plausible explanation than alleged price manipulation.
Another example is the recent hack of a major trading platform, which led to short-term market disruptions. Such exogenous shocks have an immediate impact on the Bitcoin price and increase volatility.
The Long-term Picture: Bitcoin as an Irrepressible Asset
Even if short-term market manipulation were to occur, history has shown that it cannot stop Bitcoin in the long term. An often-used image is that of a beach ball that you try to push under water – sooner or later it will resurface.
Due to the limited total supply of 21 million Bitcoins and the growing adoption worldwide, it is hardly possible to artificially curb the price in the long term. Supply and demand ultimately determine the price, and as Bitcoin becomes more widespread and used, the influence of individual large market participants is diminishing.
Conclusion
The current market correction is a challenge for investors, but it also offers opportunities. The uncertainty in traditional financial markets and the weak demand for Bitcoin suggest that volatility will continue in the short term. In the long term, however, a stabilization could occur, especially if institutional investors continue to show a strong interest in Bitcoin and the US dollar weakens.
Investors should be aware that such corrections are part and parcel of the crypto market and that long-term perspectives play a crucial role. Whether a trend reversal will materialize in the coming weeks depends above all on the development of the financial markets and the demand for cryptocurrencies.
While short-term market manipulation cannot be ruled out, there is a lack of strong evidence for targeted and long-term price suppression of Bitcoin. Many of the alleged manipulations can be explained by normal market dynamics, including profit-taking, derivatives trading and macroeconomic developments.
Bitcoin remains less vulnerable to long-term manipulation than other financial instruments due to its decentralization and the possibility of self-custody. Investors should therefore be less guided by theories of price suppression and instead maintain a long-term perspective.
Author
Ed Prinz serves as the chairman of https://dltaustria.com, the most renowned non-profit organization in Austria specializing in blockchain technology. DLT Austria is actively involved in educating and promoting the added value and possible applications of distributed ledger technology. This is done through educational events, meetups, workshops and open discussion panels, all in volunteer collaboration with leading industry players.
Disclaimer
This is my personal opinion and not financial advice.
For this reason, I cannot guarantee the accuracy of the information in this article. If you are unsure, you should consult a qualified advisor you trust. No guarantees or promises of profits are made in this article. All statements in this and other articles are my personal opinions.